BIR Ruling

May 16, 1974 Maryknoll High School Lembajon Baganga, Davao Oriental Attention: Teodulo Narisma Principal Gentlemen : This is in connection with your letters all dated November 15, 1973 to the President of the Philippines, appealing in behalf of the Maryknoll High School for exemption from income tax under the provisions of Presidential Decree No. 305. aisa dc In reply thereto, I have the honor to quote hereunder the message of the Honorable, the Secretary of Finance explaining the reasons why educational institutions, whether stock or non-stock, such as the Maryknoll High School, should be subjected to income tax. "Presidential Decree No. 305 requires private schools to file income tax returns in line with the provisions of the new Constitution. Under this Decree, private educational institutions; whether stock or non-stock, shall pay a tax of only 10% of their taxable net income from the operation of the school, related school activities, passive investment income consisting of interests, dividends, royalties and the like. Please bear in mind that the tax is fixed at only 10% as against the taxes paid by other corporations which is at the rate of 35%. "Generally speaking; good schools do not have any profits; they provide more school services than the tuition fees paid, hence, they are not bothered by income taxes. The Government believes that if a school has surplus income and does not use it for the benefit of the school they should be taxed. In turn, this tax income can be used to support public education. As you may know, about 30% of the total current expenditures of government goes to education. "As provided in the Decree, outlays for the expansion or improvement of school facilities can be deducted from the taxable income of the school. A school which spends a good portion of its income for the expansion of the school and for the improvement of its learning facilities need not worry about payment of income tax because of the deductions allowed. Hence, this tax policy on private schools will eventually result in reinvestment in school facilities and hopefully a higher standard of education. "Taxes are everybody's concern. This is the main revenue of the government, as fees are to school and as wages are to workers. Taxes are spent for general welfare, especially for defense, security, health, and education, as well as for many other services demanded by the poor people, particularly. The Constitution also stipulates that taxation must be progressive those who have higher incomes must pay more taxes. "You will note that private educational institutions enjoy a lower tax levy than all other sectors in recognitions of the special role that educational institutions play in the development of an enlightened and responsible citizenry. Taxation, as we all know, is an instrument for guiding national activities and for collecting revenues which are then spent for general public welfare." In view of all the foregoing, this Office does not see its way clear in recommending tax exemption in favor of educational institutions. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5